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TMI Blog2023 (1) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of Fees for Included Services [FIS] under the India - USA Double Taxation Avoidance Agreement [DTAA] and thus are liable to taxation in India. 4. Briefly stated, the facts of the case are that the assessee is incorporated under the laws of USA and is engaged in the manufacture and supply of life science research, healthcare, analytical chemistry and other markets with broad range of products and systems. The assessee also provides business support services to its group companies. Being a tax resident of USA, the assessee is entitled to the beneficial provisions of the DTAA. The assessee also has a copy of tax resident certificate. The assessee does not have any presence in India either in form of an office, a branch or a factory, a warehouse or any other fixed place of business. 5. During the year under consideration the assessee has cross charged to its affiliate in India for rendition of information technology and other administrative services. Such services were rendered pursuant to the General Services and Cost Allocation Agreement entered into between the members of the Bio-Rad Group. 6. In both the years under consideration, the Assessing Officer concluded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relying upon the very same judgments which have been referred to by the Assessing Officer in his assessment order. The ld. DR has heavily relied upon the Explanatory Notes to the MOU. 13. We have given thoughtful consideration to the orders of the authorities below and have carefully considered the judicial decisions relied upon by both the representatives. We have also considered the relevant documentary evidences brought on record in light of Rule 18(6) of ITAT Rules. 14. General Services and Cost Allocation Agreement is effective from 01.01.2010 by which it was, inter alia, agreed that the service providers are willing to use their personnel, expertise and faculties to provide such services on the terms and conditions set forth herein and the parties acknowledge that the costs and expenses incurred with respect to the services benefit certain or all the members of the Bio- Rad Group in their efforts to conduct the business and to promote, sell or support the products. 15. The description of the services are as under: "1. Information Technology Services. Services related to the provision of information technology, including without limitation the provision of networks. nelpd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining of a Party's customers and employees, including without limitation the provision of trainers to hold training classes at Party's or customer's site and attendance at trainings held at Service Provider's site. 8. Treasury Services. Services relating to treasury services, including without limitation the management of the following: cash and its equivalents, investments, stock plans, hedging, foreign currency exchange risks; and other treasury-related executive and administrative services. 9. Materials Management. Procurement, and Logistics Services. Services relating to materials management, procurement, and logistics, including without limitation services provided in connection with inventory, product, and component handling; transport; inventory; warehousing; packaging; materials; and other related services. 10. General. Administrative, and Other Services. Genera!, administrative and other services snail include any services not otherwise specified in this Agreement. 16. Article 12(4) of the DTAA reads as under: "4. Fees for included services" as used in this Article means payments of any kind to any person in consideration for rendering of any technical or con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licitly necessitates make available clause in regard to the phrase "Consist of the development and transfer of a technical plan and technical design". This enabling provision of India-US DTAA has larger scope of application to technical services, as has been enumerated in the Explanatory Note (India- US MOU dated 12-09-1989) on paragraph 4(b) which is reproduced below: Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plant or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person). This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as fees for included services ? Analysis: The fees are for included services. The U.S. company clearly performs a technical service for the Indian company, and it transfers to the Indian company the technical plan (i.e., the computer programme) which it has developed. Example 6 Facts: An Indian vegetable oil manufacturing company wants to produce a cholesterol-free oil from a plant which produces oil normally containing cholesterol. An American company has developed a process for refining the cholesterol out of the oil. The Indian company contracts with the U.S. company to modify the formulas which it uses so as to eliminate the cholesterol, and to train the employees of the Indian company in applying the new formulas. Are the fees paid by the Indian company for included services ? Analysis: The fees are for included services. The services are technical, and the technical knowledge is made available to the Indian company. Facts :An Indian firm owns inventory control software for use in its chain of retail outlets throughout India. It expands its sales operation by employing a team of travelling salesmen to travel. In view of the above position the provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l design. The same has to be read along with the MOU which has been entered into on May 15, 1989 and is a part of the notified DTAA. 13. In the MOU, paragraph 4(a) (herein above termed clause) of DTAA was clarified and agreed to be understood in order for a service fee to be considered "ancillary and subsidiary" to the application or enjoyment of the right, property, or information; only with respect to a service related directly to such application or enjoyment. The predominant nature of the arrangement should be the application or enjoyment of the right, property or information described in paragraph 3. It was also agreed that the question as to whether such services is related to the application or enjoyment would be determined by reference to the facts and circumstances of each case. Paragraph 4(b) was agreed to be narrower than the category described in paragraph 4(a), since it excludes any service that does not make technology available to the person acquiring this service. Technology would be considered to be 'made available' only when the person acquiring the service is enabled to apply the technology. So there should clearly be a transfer of technology with the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out the survey by equipments brought by them into India and supplied the necessary details to the Indian Company. The Division Bench of the Karnataka High Court found that there was no transfer of technology and the foreign company merely carried out a survey, collected data and processed it to identify the probable mining sites. The mere transfer of such data, including maps and photographs, cannot be considered as a transfer of technology was the finding. 18. We are conscious of the fact that the DTAA as relevant in the present case, is not applicable even in the case of De Beers India Minerals (P.) Ltd. (supra), where the non-resident hailed from Netherlands. However, on facts we are of the opinion that when the definition clause in DTAA read along with the MOU specifically refers to transfer of technologies, the facts as available in the Karnataka decision are more similar to the present facts. Herein also there is no technology transfer; nor is there a plan or strategy relating to management, finance, legal, public relations or risk management transferred to the appellant. The services promised by the non-resident Company is only advise on such aspects as are specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be alleged against the appellant for reason of such obligation not existing in law. The questions of law raised as (i) and (ii) are answered against the Revenue and in favour of the assessee. 21. We have already held that the services offered by the US Company would not come under the definition of 'included services' as available under the DTAA and as a consequence, the remuneration received by the US Company would not be 'fees for included services'. We have to find that the interpretation of the provisions of the DTAA between the Governments of India and USA have not been correctly carried out by the Tribunal. We, hence, set aside the orders of the lower authorities answering the questions of law (iii) and (iv) against the Revenue and in favour of the assessee. In view of the answers already given by us, we are of the opinion that questions of law raised at (v) and (vi) need not be answered. In I.T.A.No.38 of 2014, the orders are set aside and the AO is directed to consider the claim of expenditure afresh without looking at the application of Section 195(1), which is not applicable. There is no requirement, as found by us, to deduct tax at source. In all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not consist of the development and transfer of any technical plan or technical design. 10. The Tribunal examined the evidence available on record in order to return a finding on the issue as to whether the payments received by the assessee from the insurance companies operating in India would fall within the expression 'fees for technical services' as appearing in article 13(4)(c) of the DTAA read with section 9(1)(vii) of the said Act. XXXXX 11. The Tribunal also noted the process by which the transaction takes place. It has been pointed out that the originating insurer in India would contact J.B. Bodal M.B. Boda for placing identified risks/ class of risks with international reinsurers. J.B. Boda, in turn, would contact one or more international firm(s) of reinsurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know-how or process which is used by service provider to render technical service should also be made available :it is open to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know -how or processes so as to render such technical services. Once all such technology is made a a able it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilizes for rendering technical services. The crux of the matter is after rendering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of paragraph (4)(b ). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." 26. In light of the aforementioned judicial decisions, we are of the considered view that the service recipient of the assessee is unable to make use of the said technology only by itself in its business or for its own benefit without recourse to the assessee year after year. 27. The Revenue has relied upon the decision in the case of Shell India Markets (P.) Ltd.(342 ITR 223. This decision was also used in the case of Linklaters LLP vs Deputy Commissioner of Income-tax [2017] 79 taxmann.com 12 and while deciding the appeal of Linklaters LLP(supra), the co-ordinate bench at Mumbai has observed as under: "14 Similarly reliance placed by AO on another judgement of AAR in the case of Perfetti Ben case (supra) is misconceived since this ruling has been set aside by Hon'ble Delhi High Court in the judgement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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